Chapter 05.ppt alim kolim beijing chinak

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1. McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, All Rights Reserved
Estimating Project
Times and Costs
Chapter 5

2. 5-2

3. 5-3
Estimating Projects
Estimating
The process of forecasting or approximating the
time and cost of completing project deliverables
The task of balancing the expectations of
stakeholders and the need for control while the
project is implemented
Types of Estimates
Top-down (macro) estimates: analogy, group
consensus, or mathematical relationships
Bottom-up (micro) estimates: estimates of
elements of the work breakdown structure

4. 5-4
Why Estimating Time and Cost Are
Important
EXHIBIT 5.1
•Estimates are needed to support good decisions.
•Estimates are needed to schedule work.
•Estimates are needed to determine how long the project
should take and its cost.
•Estimates are needed to determine whether the project
is worth doing.
•Estimates are needed to develop cash flow needs.
•Estimates are needed to determine how well the project
is progressing.
•Estimates are needed to develop time-phased budgets
and establish the project baseline.

5. 5-5
Factors Influencing the Quality of Estimates
Quality of Quality of
EstimatesEstimates
ProjectProject
DurationDuration
PeoplePeople
Project Structure Project Structure
and Organizationand Organization
PaddingPadding
EstimatesEstimates
OrganizationOrganization
CultureCulture
Other (Nonproject)Other (Nonproject)
FactorsFactors
Planning Planning
HorizonHorizon

6. 5-6
Estimating Guidelines for Times,
Costs, and Resources
1.Have people familiar with the tasks make the estimate.
2.Use several people to make estimates.
3.Base estimates on normal conditions, efficient
methods, and a normal level of resources.
4.Use consistent time units in estimating task times.
5.Treat each task as independent, don’t aggregate.
6.Don’t make allowances for contingencies.
7.Adding a risk assessment helps avoid surprises to
stakeholders.

7. 5-7
Macro versus Micro Estimating
TABLE 5.1
Conditions for Preferring Top-Down or Bottom-Up
Time and Cost Estimates
Condition Macro Estimates Micro Estimates
Strategic decision making X
Cost and time important X
High uncertainty X
Internal, small project X
Fixed-price contract X
Customer wants details X
Unstable scope X

8. 5-8
Estimating Projects:
Preferred Approach
Make rough top-down estimates
Develop the WBS/OBS
Make bottom-up estimates
Develop schedules and budgets
Reconcile differences between top-down
and bottom-up estimates

9. 5-9
Methods for Estimating Project
Times and Costs
Macro (Top-Down) Approaches
Consensus methods
Ratio methods
Apportion method
Function point methods
for software and
system projects
Learning curves

10. 5-10
Apportion Method of Allocating
Project Costs Using the Work
Breakdown Structure
FIGURE 5.1

11. 5-11
Simplified Basic Function Point Count
Process for a Prospective Project or
Deliverable
TABLE 5.2

12. 5-12
Example:
Function Point Count Method
TABLE 5.3

13. 5-13
Methods for Estimating Project
Times and Costs (cont’d)
Micro (Bottom-Up) Approaches
Template method
Parametric procedures applied
to specific tasks
Detailed estimates for the WBS
work packages
Phase estimating: A hybrid

14. 5-14
SB45 Support Cost Estimate
Worksheet
FIGURE 5.2

15. 5-15
Phase Estimating over
Product Life Cycle
FIGURE 5.3

16. 5-16
Level of Detail
Level of detail is different for different levels
of management.
Level of detail in the WBS varies with the
complexity of the project.
Excessive detail is costly.
Fosters a focus on departmental outcomes
Creates unproductive paperwork
Insufficient detail is costly.
Lack of focus on goals
Wasted effort on nonessential activities

17. 5-17
Three Views of Cost
FIGURE 5.6

18. 5-18
Types of Costs
Direct Costs
Costs that are clearly chargeable to a specific
work package.
oLabor, materials, equipment, and other
Direct (Project) Overhead Costs
Costs incurred that are directly tied to an
identifiable project deliverable or work package.
oSalary, rents, supplies, specialized machinery
General and Administrative Overhead Costs
Organization costs indirectly linked to a specific
package that are apportioned to the project

19. 5-19
Contract Bid Summary Costs
FIGURE 5.5
Direct costs $80,000
Direct overhead $20,000
G&A overhead (20%) $20,000
Profit (20%) $24,000
Total bid $144,000

20. 5-20
Refining Estimates
Reasons for Adjusting Estimates
Interaction costs are hidden in estimates.
Normal conditions do not apply.
Things go wrong on projects.
Changes in project scope and plans.
Adjusting Estimates
Time and cost estimates of specific activities are
adjusted as the risks, resources, and situation
particulars become more clearly defined.

21. 5-21
Refining Estimates (cont’d)
Contingency Funds and Time Buffers
Are created independently to offset uncertainty
Reduce the likelihood of cost and completion time
overruns for a project
Can be added to the overall project or to specific
activities or work packages
Can be determined from previous similar projects
Changing Baseline Schedule and Budget
Unforeseen events may dictate a reformulation of
the budget and schedule.

22. 5-22
Creating a Database for Estimating
FIGURE 5.7
Estimating
Database
Templates

23. 5-23
Key Terms
Apportionment methods
Bottom-up estimates
Contingency funds
Delphi method
Direct costs
Function points
Interaction costs
Learning curves
Overhead costs
Padding estimates
Phase estimating
Ratio methods
Template method
Time and cost
databases
Top-down estimates